Hello Freedom Seekers!
On the docket for today:
Hope for the best, prepare for the worst
What you don’t know > What you do know
Live Deal (first deal that has been interesting to me in quite some time)
Hope for the best, prepare for the worst
A few editions ago, I shared the invaluable exercise of Fear Setting, which allows you to really “quantify” worst case scenario(s). I thought it would be helpful to take this a step further to mitigate these kinds of risks with an actual case study.
A few weeks ago, a subscriber reached out to me notifying me that he was heavily interested in pursuing a financial-focused digital content asset (can’t share the name per NDA terms) and wanted feedback. This is right in my wheelhouse, so rather than provide feedback, I basically served as his buyside advisor and took reins of the process, starting with a 60 min intro call with the broker and owner.
One of the major risks coming out of the call was reliance on SEO. Personally, any form of reliance on SEO or an algorithm (e.g., YouTube, Amazon, etc.) is a non-starter for me. Why? Because one weird, random switch in the algorithm and you are non-existent from one day to the next…for no particular reason.
In my opinion, the way you mitigate something like this is either through:
Specific knowledge to be able to mitigate this risk yourself (e.g., you are a master in SEO) OR
Enough margin in the business that you could pay someone to solve this problem for you while maintaining target financial metrics
I think the biggest MISS most folks make is they simply ignore the risk and think “that will never happen to me.” So, I wanted to provide an example.
As part of a discovery call for DNVR FIT (the brand my partner and I recently launched) with a leading chiropractor in Denver, we began talking about her biggest pain point: SEO. From one day to the next, her brand became non-existent online. For literally no particular reason. This is 5.0 star (+300 perfect Google reviews), 10+ year old business.
She has been scrambling to solve this with a DEO / AEO agency - an entirely new space that is evolving to try and solve for LLM preferences. My honest opinion…
The people in my network that are the smartest in AI all agree that LLMs are a total black box (no one really knows how they work) and continue to evolve at an insanely fast pace. Majorly difficult game to play…definition of trying to shoot a moving target.
I want to share this as a REAL example of algorithm reliance effectively eliminating a business’s entire sales channel. I think the point here is every business has specific & nuanced risk, but if you want to play the game, you need to be prepared to actually play the game.
I advised the subscriber I helped out to walk from that deal. We both acknowledged that neither of us are experts in SEO and would not be prepared to deal with an algorithm change. Who knows if that was ultimately the right move or not, maybe this business goes onto crush!
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Dunning-Kruger Effect: What you don’t know > What you do know
In writing the quick excerpt above on my friends who are the smartest in AI, it reminded me of something that one of the smartest people (MD @ Bain Capital) I have ever worked with said: “I don’t know exponentially more than I ever will know”
This is a guy who was uncommon against the uncommon (IYKYK), humbly admitting that he can never know as much as he doesn’t know. And IMO the only way to get to this point of realization, is an extremely high degree of knowledge.
I hope this resonates with some folks to remember in search and especially diligence, that you will never know everything! Lean on subject matter experts, ask for help, run things by your friends & mentors!
In hindsight, this was my #1 miss on my last deal: thinking that I knew better than everyone else. If I had dropped my ego and that notion, it would have opened my eyes to a lot of issues and saved me from a lot of subsequent pain.
Understanding and appreciating this concept has allowed me to make much more rational decisions as I actually assign value to the “unknown” downside, rather than solely quantifying the known downside(s). For those of you that are heavy financial modelers, think of all the Downside cases we have modeled that show an insane margin bump or 50% YoY reduction in sales for “no good reason” as a stress test. Early in my career in leveraged finance, I never understood why we did that…I mean in what world would something like that ever happen. Well…COVID? Tariffs?
It all makes a lot more sense now 🙂
